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What sets the general provident fund apart from other saving schemes

BusinessWhat sets the general provident fund apart from other saving schemes

Saving is crucial for financial stability and security, especially when planning for the future. Regular savings create a financial cushion that can help you handle emergencies and achieve long-term goals such as buying a house, funding education, or enjoying a comfortable retirement. You ensure peace of mind for tomorrow, avoid unnecessary debt, and prepare for unforeseen circumstances by setting aside money today.
Investing in provident funds (PFs) is a great method to save for the future and ensure your retirement. Provident funds are government-sponsored plans that provide guaranteed returns with the added benefit of tax breaks under specific situations.
PFs often collect contributions directly from your salary, allowing for a disciplined and consistent approach to savings. These little donations compound over time to create a sizeable retirement fund. PFs are also relatively low-risk investments with guaranteed returns, making them appropriate for conservative investors seeking financial stability after retirement.
Saving through provident funds not only helps you build a sizeable retirement fund, but it also ensures long-term financial security, allowing you to live a worry-free life.
In general, India now has three types of PFs: general provident fund (GPF), public provident fund (PPF), and workers provident fund (EPF).
What is GPF and how it is different from other saving schemes.
The GPF is an exclusive retirement savings system for Indian government employees. It allows employees to contribute a portion of their monthly salary, with the collected funds earning interest. The interest rate is determined by the government and revised regularly. One of the key benefits of GPF is its tax-free nature, as contributions, interest earned, and withdrawals are all exempt from tax.
Its mandatory for employees to contribute a certain percentage of their salary. They can voluntarily increase this contribution up to their entire salary. Employees can withdraw from the GPF after a certain number of years of service or for specific purposes like education, marriage, etc. Full withdrawal is allowed at retirement or superannuation.
One of the biggest advantages of EPF is that the contributions made to GPF, the interest earned, and the final withdrawal amount are all exempt from tax (under EEE – Exempt, Exempt, Exempt category).
In comparison to other saving schemes in India, GPF has unique features. While the PPF and EPF are open to a broader segment of the population, they differ in terms of lock-in periods and contribution structures.
While PPF was open to everyone offering a reliable and government-backed savings option. With a 15-year lock-in period and tax benefits, it allowed investors to contribute voluntarily, providing a safe long-term investment.
In PPF the contributions are voluntary, with a minimum of Rs 500 and a maximum of Rs 1.5 lakh per year. Interest rates are similar to GPF but set by the government and subject to quarterly revision. On the taxation front it has EEE status, similar to GPF.
Employees in companies with more than 20 workers, on the other hand, are required to contribute to an EPF. The EPF was created for salaried workers, providing tax-free interest and contributions. The Employees’ Provident Fund Organization (EPFO) sets interest rates on a yearly basis. In comparison to PPF, it featured a shorter lock-in period and allowed for partial withdrawals in emergencies.
The PPF was suitable for those seeking flexibility, EPF was structured for salaried individuals with employer contributions, making both schemes valuable in different ways.
In conclusion the GPF stands out due to its guaranteed returns, tax benefits, and flexibility in withdrawals, making it a secure option for government employees.

Rakesh Goyal is the Director of Probus

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